Have you ever gone to a sporting event, a movie, theme park, or a gym and paid sales tax on your ticket or entrance fee? While most of us do not pay attention to that separate line item for state sales tax, state sales tax attorneys and professionals look at the world through a different lens. While sales tax generally only applies to the sale of tangible personal property, most states have a separate provision that allows them to tax admissions.
Sales tax rules on admissions can be convoluted and go against basic sales tax principles. While most states have some form of sales tax on admissions, the rules can vary considerably from state to state. For example, some states allow for the tax-exempt purchase for resale of admissions, while others require that sales tax is paid throughout the supply chain and force resellers to take credit. Equally confusing is whether the business is charging for a taxable admission—the right to enter a place of enjoyment or a membership fee, which can be a nontaxable charge to belong to an organization.
Recently, the Alabama Tax Tribunal tackled that dilemma in a case involving a shooting range. The range was originally opened as a private training range but morphed into a facility that allowed the public daily access if they filled out a range membership application and paid a public use range fee. Was the “membership fee” subject to Alabama’s admissions tax?
Like most states, Alabama imposes a sales tax on fees for entering places of amusement and entertainment that are open to the public. Cases like 2MC and Cypress Lakes Golf & Country Club also state that only charges for entry to public establishments are subject to tax. However, because the gun range was arguably accessible to the public, the Alabama sales tax auditor believed it was subject to tax and issued an assessment.
During the administrative court proceeding, known as the Tax Tribunal in Alabama, the Taxpayer presented evidence showing that only members could use the range and that it changed its public use fees to Daily Use Range Fees. Splitting hairs, the Tax Tribunal said that while the range is not open to the general public, it was open to the public who met certain requirements. Relying on the dictionary definition of the word public, the Tribunal concluded that the admission was subject to tax.
Although Alabama has provisions that specifically exempt private memberships from tax, many states do not. For example, in North Carolina admissions are generally taxable. Similarly, states like Texas and Wisconsin, and many others specifically take the position that gun range admissions are subject to sales tax. There may be opportunities, however, to avoid or reduce the sales tax on admissions by classifying or describing the fee in exchange for something other than the right to enter the facility.
Over the past year, gun sales and corresponding range use have been on the rise. If you go to a range, do not be surprised if you see that charge for state sales tax on the receipt. If you or your client is a range owner, be aware of the possibility of more audits to come and the opportunity to get your sales tax situation in order now if you have not already done so.
At Sales Tax Helper, not only do we represent companies during state sales tax audits and appeals, but we also provide important consulting services for you or your client’s businesses to prevent the audit in the first place.
For the Full Opinion FOP Range, Inc. v. Alabama Department of Revenue, Case 19-788-L.P. Click Here.